SEZ And Industrialization

SEZ is initiated for rapid industrialization and regional developments. SEZ and industrialization go hand-in-hand with the economic growth of developed and developing countries. The main aim of SEZ is to increase trade balance, employment opportunities, increase investment by investors and administration management. SEZ can be considered a tool to promote industrialization. However, this zone can be risky and expensive and require careful planning.

SEZ:

SEZ term stands for the Special Economic Zone which covers a wide range of zones such as trade free zone, export zone, economic development zone, high technology zone, free ports, enterprises zone, institutional parks and many more.

SEZ may be defined as a zone within a country that is duty-free or tax-free and has different business and commercial laws different from the laws of the country in order to encourage investment and create employment and support the economic growth of the country. SEZs are also created to establish better management systems to increase the ease of doing business.

The first SEZ was established in 1959 in Ireland. After that East Asian and Latin American regions also began to establish such types of zones in 1970 in the form of export processing zones (EPZs).

Characteristics of SEZ:

There are four characteristics of SEZ that define the concept of SEZ.

1. SEZ area is a geographically delineated area which means the area should be physically secured.
2. SEZ has single administration management.
3. SEZ offers benefits for investors.
4. SEZ has a separate customs area.

Industrialization: 

Industrialization is the process to convert primarily agriculture to the manufacturing of goods or services for the development of the economy of the country. The factors which influence industrialization are capital, labour, natural resources, technology, consumers, logistics and government policies.

SEZ in India:

SEZ Policy in India was announced in 2000 in order to overcome the obstacles businesses faced. The obstacles such as:

• Many clearances or regulation certificates are to be obtained before starting any business
• Infrastructure facilities in India were not up to the mark of world standards
• The fiscal regime was unstable as well

The government of India announced this policy in order to attract huge foreign investors into the country. The Parliament passed the SEZ Act or Special Economic Zones Act in 2005 after many consultations and debates. The Act came into force along with its rules in 2006. However, In India, SEZ was operational from 2000 to 2006 under the policy of Foreign Trade.

Special Economic Zones Act, 2005 was implemented in order to provide for the better establishment, development and management of the Special Economic Zones and for the promotion of exports.

As of 31st January 2021, there are 265 SEZs that are operational in India. About 64% of the SEZs are located in five states such as Tamil Nadu, Telangana, Karnataka, Andhra Pradesh and Maharashtra.

Objective of SEZ Act:

The main objective of SEZ Act which was implemented by the government of India are as follows:

1. To create better economic activities.
2. To increase the export of goods.
3. To generate employment opportunities.
4. To boost domestic and foreign investments.
5. To develop high-tech infrastructure facilities.

SEZ in GST:

SEZ is not considered a part of the country. So, being in SEZ can be advantageous to a certain extent when it comes to taxes. Any supply of goods or services to a Special Economic Zone will be considered to be a zero-rated supply which means that these supplies attract a Zero tax rate under GST. In simple words, we can say that supplies into SEZ are excluded from GST and are considered as exports.

But, when an SEZ supplies goods or services to a Domestic Tariff Area (DTA) then, this will be considered as export to DTA and customs duties and other import duties will be payable by the person.

Exclusive Economic Zone:

An Exclusive Economic Zone (EEZ) is a zone in the sea described by the United Nations Convention on the Law of the Sea (UNCLOS), according to which a country has certain rights. India has about 2.37 million square kilometres exclusive economic zone of India which are guarded and regulated by the Indian Coast Guard Ships.

Benefits of SEZ:

The government of India offers various incentives and benefits for companies and businesses that are established in SEZs. 

Some of the important benefits include:

1. Duty-free import of goods and services for developing, operating and maintaining SEZ units.
2. Income tax exemption up to 100% on export income for SEZ units for the first five years, under the Income Tax Act.
3. Units are exempted from Minimum Alternate Tax (MAT), Central Sales Tax, Service Tax and State sales tax.
4. Clearance in a single window for Central and State level approvals.
5. No need for a license for import.
6. In the manufacturing sector, excluding a few segments, FDI is allowed up to 100%.
7. No need for separate documentation for customs and export & import policy.
8. Developed plots and ready-to-use space are offered by most of SEZ.

Challenges to SEZ:

There are various challenges that are faced by SEZ such as:

1. SEZs offer a variety of incentives and tax benefits to the government. So, it is believed that many domestic firms shifted their base to SEZs.
2. The promotion of SEZs may be at the cost of fertile land used for agricultural purposes which may affect the food security and loss of revenue and can also cause uneven growth with adverse effects.
3. Water security is also affected because of the diversion of water that is used for SEZs.
4. SEZs also cause pollution as they release untreated effluents into the sea which may affect the fisheries and dairy sectors.
5. SEZs must be promoted but not on the cost of the agricultural sector of the country.